Tag Archives: probate

Will your Executor have access to your emails?

cellphoneAre you wondering what will happen to your Facebook account, emails, online photos and other digital assets after your death?  If so, you may soon have a clearer answer under Massachusetts law.  Norfolk Probate Court will soon decide whether a Personal Representative appointed in Massachusetts may access the emails of a deceased person in the case of Ajemian v. Yahoo!.  The case has worked its way through the Massachusetts courts for the last several years.

Ajemian is an interesting case with potentially significant implications.  John Ajemian died in August 2006.  He died intestate (without a Will) and at the time of his death owned a Yahoo email account.  His siblings were appointed as Personal Representatives (PRs) of his estate by Norfolk Probate Court.  After their appointment they asked Yahoo for access to John’s email account.  Yahoo denied their request.  So the PRs brought an action in Norfolk Probate Court to obtain access, but the court denied their petition.  The court held that Yahoo was prohibited from disclosing the emails under the Stored Communications Act (SCA), a federal law designed to maintain the privacy of electronic communications held by internet service providers.

On appeal, the Massachusetts Supreme Judicial Court held in October 2017 that Yahoo was not prohibited from releasing the emails to the PRs under the SCA.  The reason was two fold.   First, the emails were property of John’s estate over which the PRs could exercise control and ownership.  Second, the PRs could “lawfully consent” to the release of the emails, an exception to the disclosure prohibition of the SCA.

While the SJC decision was a victory for the PRs, the court declined to determine whether Yahoo was required to disclose the emails under Yahoo’s terms of service agreement (TOS) with John.  Yahoo argued that the TOS gives it the authority to terminate the account at any time which allows it to deny the PR’s access.  The SJC remanded to the Probate Court to determine whether Yahoo could withhold the emails under the TOS.

Yahoo petitioned to the Supreme Court, but the Supreme Court declined to hear the case in late March 2018.   This means the case is now in the hands of Norfolk Probate Court again to determine whether Yahoo can deny the PRs access to the emails based on the provisions of the TOS.

I am eagerly awaiting the decision of Norfolk Probate.  It will have widespread implications in determining whether and how PRs may access the digital assets of a decedent in Massachusetts.  Even after Norfolk Probate decides, questions will likely remain.  Will a PR be able to access a digital asset if the TOS explicitly prohibits access by a PR or states that the account terminates at death?  Will the PR’s authority over the decedent’s assets trump the provisions of the TOS?  What if access to the digital assets is not addressed in the decedent’s estate plan?

Stay tuned for additional updates about the Ajemian case and estate planning for digital assets.  This is an interesting and developing area of the law.

IRS offering same sex couples restored exclusion amount

HumptyIt’s tax season again, which means that it’s time to file your gift tax return if you made taxable gifts in 2017.   This year’s gift tax return instructions contain an interesting change for taxpayers who made taxable gifts to a same sex spouse prior to the Supreme Court’s decision in United States v. Windsor.  (If you, like me, have been thinking that our federal government did nothing kind in 2017, you’ll like this one.)

First, some background.  The Defense of Marriage Act (DOMA) was the federal law that prohibited same sex marriage.  Under DOMA, a taxpayer who made gifts to his same sex spouse in excess of the annual exclusion was required to use some of his applicable exclusion amount because the gifts were not eligible for the marital deduction.   In addition, a taxpayer who established a trust for the benefit of a much younger same sex spouse (who qualified as a “skip” person under generation skipping transfer (GST) tax law) was required to allocate a portion of his GST tax exemption to the trust if he wanted the trust to be GST exempt.

Heterosexual married couples were required to do neither.  A heterosexual married taxpayer could make unlimited gifts to a spouse without allocating application exclusion.  In addition, a heterosexual spouse would never be considered a “skip” person for GST purposes, no matter the age difference.

In 2013, in Windsor, the Supreme Court held that DOMA was unconstitutional. Shortly after Windsor, the IRS issued new rules that stated that same sex marriages would be treated the same as heterosexual marriages under federal tax law.  Gifts between same sex couples would be treated the same as gifts between heterosexual couples.  The gifts would be eligible for the unlimited marital deduction, no applicable exclusion would have to be used, and the spouse would not be considered a “skip” person for GST purposes.

But the injustice imposed by DOMA prior to 2013 was not remedied until 2017 when the IRS released Notice 2017-15.   In 2017, the IRS now offers the following two (2) remedies for same sex taxpayers:

  • Restoration of Applicable Exclusion Amount. A taxpayer who used his applicable exclusion when reporting gifts to a same sex spouse can now file a gift tax return and request that his exclusion be “restored”.  The taxpayer can get back his previously used exclusion by filing a gift tax return with a calculation of what he used in prior tax years.  This can be done even if the limitations period has run, which means the exclusion can be restored back to the beginning of the marriage, as long as the marriage was recognized under state law.  If the taxpayer would have to make a QTIP or QDOT election to qualify the gift for the unlimited marital deduction, he will also have to file a request for 9100 relief.
  • Recalculation of the Available GST Exemption. The IRS will treat as void certain allocations of GST exemption to transfers to a same sex spouse and/or his or her descendants.  This allows the taxpayer to recalculate his remaining GST exemption and get back GST exemption allocated on prior returns.  As above, to obtain relief, the taxpayer must file a gift tax return and explain the recalculation of his or her GST exemption.

In both cases, the IRS states its preference that the restoration and recalculation be done on the first gift tax return required to be filed after issuance.  This means the requests for recalculation should be made on the 2017 return, if 2017 gifts were made.

Image of Denslow’s Humpty Dumpty 1904 from Wikipedia.

Your Living Will and Dementia

elderlyA Living Will is a legal document that is typically part of an Estate Plan.  In a Living Will, you express your wishes about the medical care you would like to receive at the end of your life.  It includes instructions about when and under what circumstances you want medical care to be withheld or withdrawn resulting in your death.  The instructions in your Living Will guide the person named as your health care agent in your Health Care Proxy in making end of life health care decisions for you when you are unable to do so.   To put it bluntly, you are instructing the health care agent when it is okay to “pull the plug”.

If you do not have a Living Will, Massachusetts law presumes that you wish your life to be extended as long as possible with all available medical treatments and interventions, even if you have a poor quality of life with little chance of recovery.  If that is not your wish, you should put your wishes in writing by signing a Living Will that expresses your wishes.  Verbal instructions to family members are not legally binding.

A recent and interesting NPR program focused on a team of doctors at the University of Washington who are advising patients, while still healthy, to sign a dementia-specific Living Will.  Their sample dementia directive form includes specific instructions about end of life care for those suffering from Alzheimer’s or other forms of dementia.  It allows the patient to express different wishes about desired care at different stages of illness – mild, moderate and severe

These doctors believe specific language for dementia should be included in a Living Will because dementia is unique and as dementia progresses patients become increasingly unable to express wishes about medical care and the side effects of that care become increasingly intolerable.   The University of Washington doctors also cite the increasing number of people who will be suffering from dementia in the future as another reason to specifically address this issue.

I advise all my clients to sign a Living Will and offer my clients recommended language.  The Living Wills I recommend do not yet include specific instructions for dementia.   Although I do not specifically endorse the University of Washington sample dementia directive form, I believe this is an important issue and intend to pay more attention to it in the future.   If you wish to explore this issue further, consult an estate planning attorney or check out the resources available at The Conversation Project.

Themes and Highlights from the 2018 Heckerling Institute on Estate Planning

Letter HDale and I recently attended the 52nd annual Heckerling Institute on Estate Planning in Orlando, Florida.  The passage of the Tax Cuts and Jobs Act in 2017 meant that there was even more to learn and discuss this year.  The following are some of the themes and highlights that we found most interesting.

The federal estate tax exemption has substantially increased.  The new tax law raised the federal estate tax exemption substantially, but did not repeal the federal estate tax.  The new higher exemption (with the chained CPI adjustment) is expected to be $11.18 million per person in 2018.

Gifting may still make sense.  For those with federally taxable estates, gifting up to the increased federal exemption amount may make sense.  The experts predict that the IRS is unlikely to impose “clawback” if the exemption returns to its 2017 level after 2025 when the increased exemption is scheduled to sunset.  Upcoming regulations will likely formally address “clawback”.

Keep your eyes on the sunset.  Some portions of the new tax law sunset in 2025.  Some do not.  The increased federal exemption sunsets at the end of 2025.  This illustration from the Tax Policy Center explains the sunset provisions.

Family entities may be targeted by the IRS.  In Estate of Powell v. Commissioner, the Tax Court agreed with the IRS and held that all assets in a family limited partnership (FLP) were includible in a decedent’s estate under Section 2036(a)(2) of the Internal Revenue Code even though the decedent owned only a limited partnership interest because the decedent retained the right to dissolve the FLP in conjunction with other family members.  The court also addressed the possibility of “double inclusion” of the assets under Section 2043.  Because the IRS may use Powell to attack other family entities in the future, it may be wise to rethink the structure and terms of those entities.

Managing tax basis and federal income tax planning are essential.  The increased federal exemption means federal income tax planning is even more important.  Clients and advisors must focus on estate planning strategies to maximize tax basis and reduce capital gains taxes by passing high basis assets to future generations.

Attitudes about charitable giving are changing.  The new tax law, as well as new attitudes about charitable giving and philanthropy, are changing the landscape of charitable planning.  Many younger clients are focused more on charitable impact and less on tax savings.   Crowdfunding websites like Kickstarter and Go Fund Me offer new giving opportunities that may appeal to young philanthropic clients more than traditional strategies.

Look at Roth conversions in a new light.  Natalie Choate discussed some interesting opportunities for planning with retirement accounts, including an in depth discussion of the rules regarding Roth conversions and opportunities for income and estate tax planning with Roth conversions.  Importantly, the new tax law eliminated the opportunity to “recharacterize” (or undo) a Roth conversion.

 

Think you no longer need a good Estate Plan? You’re probably wrong.

Long roadThink you no longer need a high quality Estate Plan now that the Tax Cuts and Jobs Act has taken effect?  Think again!  You do, and here’s why.

The Tax Cuts and Jobs Act of 2017 increased the Federal estate and gift tax exemption to $11.2 million.  This means that individuals with $11.2 million and married couples with $22.4 million will not be subject to Federal estate taxes at their death.   Nonetheless, even for those of us who will likely never have such substantial wealth, it is still essential to have in place a high quality Estate Plan.  The following are three important reasons.

  • State estate tax laws remain in place. Massachusetts (and thirteen other states plus the District of Columbia) still impose a state estate tax.  In 2018, the Massachusetts estate tax exemption is $1 million and the top estate tax rate is 16%.   The Massachusetts estate tax is unlikely to change substantially in the near future.  Massachusetts estate taxes can be substantial and failing to plan for them is a mistake.
  • The Federal tax laws may change. A future Democratic Congress may amend the new tax law and reduce the Federal exemption back to the 2017 level ($5.49 million per individual) or even lower.   For this reason, it is important to have in place a flexible estate plan with estate tax planning provisions that are designed to minimize or eliminate both state and Federal estate taxes, regardless of the specifics of the existing law.
  • Estate taxes are not the only reason to have a good Estate Plan. There are lots of reasons – other than estate tax planning – to have in place a high quality estate plan.   Estate planning is essential to ensure that all family members are provided for properly.  This includes minor children, disabled adults, second spouses, adult children likely to divorce, adult children with unique needs or lifestyles, spendthrifts, and more.  More complex planning is also required for those who own family businesses or unique assets.  In addition, a good estate plan simplifies the process of estate administration and may avoid unnecessary delays, costs, and family conflict.  Finally, an estate plan can ensure that your assets can be managed properly for your benefit during you lifetime if you become incapacitated.

The change in the Federal tax laws may change the nature of estate planning and may even create new opportunities for planning.   But it does not eliminate the need for planning.  We intend to offer more advice on this in future months.  Stay tuned!

Estate Tax Savings – Donating Personal Papers and Effects

IfillSimmons College in Boston recently announced that it will name one of its new colleges after Gwen Ifill, the Peabody Award winning journalist and PBS NewsHour co-host who died last year.  Ifill’s impressive journalistic career started soon after she graduated from Simmons College in 1977.  The Gwen Ifill College of Media, Arts, and Humanities will formally launch in the Fall of 2018.  Simmons also announced that some of Ifill’s personal papers and effects (including some of the signature blazers she wore when moderating debates) were donated to the College, and will be on display.

After prominent individuals die, their personal papers, archives and effects are often donated to an educational or other charitable institution.  The reasons are two-fold.

First, the donation allows the items to be publicly accessible.  They can be studied and the contributions of the prominent individual can be celebrated and remembered.  It can preserve his or her legacy.  Second, the donor may be eligible for a charitable contribution tax deduction which may result in estate or income tax savings.

Here is how the tax deduction may work.  If a prominent individual irrevocably pledges during his or her lifetime to donate papers or other tangible items to an educational or charitable organization, the Executor of his or her estate may deduct the value of the papers and items on the individual’s estate tax return which is filed after his or her death.  If the individual did not make a pledge during his or her lifetime, but the Executor, heirs or beneficiaries decide to donate, he, she or it may be eligible for an income tax deduction.  In either case, tax savings may result.  I do not know whether Ifill pledged to donate to Simmons before her death or whether her heirs decided to donate since then.

The tax reporting of the donation may be complicated.  In all cases, to be eligible for a tax deduction, the taxpayer must report the value of the donated items on an estate or income tax return.  But valuing personal papers and items can be challenging.  An appraiser must value the items, but the IRS may question the reported appraised value, or the deduction.

There may be non-tax complications too.  The donor may wish to impose restrictions on the institution’s use of the items – for example, the manner in which they are displayed, the timing of their release, or other contingencies on use.  Imposing restrictions on the use of the items can reduce their value to the institution, and can also be difficult to negotiate and enforce.

Those wishing to donate personal papers, archives, and tangible items after the death of a prominent individual should seek professional advice.

Image of Gwen Ifill from Wikipedia Commons.

Charitable Gifts in Your Estate Plan: To Restrict or Not to Restrict?

Explosion_138,_Force_0Imagine you are preparing your Estate Plan.  You wish to make a gift to a certain charity –  the hospital that cured your cancer or your alma mater, for example.  You have a particular cause in mind – to support a certain physician’s research or to fund scholarships for needy students, for example.  Do you restrict the charitable gift to that particular cause?  Or do you give an unrestricted gift and allow the charity to use it for any charitable purpose?

Many clients are tempted to restrict their charitable gift.  I suspect they believe this will ensure that their gift is used in a manner that reflects their specific wishes.  But my advice is often to do the opposite – to give an unrestricted gift that allows the charity to decide how best to use it when the time comes.

There are several reasons why.  First, times change.  The passage of time or the changing of circumstances can cause restricted gifts to become outdated, impracticable, or sometimes even illegal, making the gift unusable or of less value to the charity.  Unrestricted gifts give the charity the flexibility and control to use the gift in the manner that best suits its purpose or mission.  Second, restricted gifts may generate higher administrative costs for the charity making less of your gift available to further the charity’s purpose.  Third, restricted gifts may ultimately require a court legal action by the charity – a petition for cy pres or equitable deviation – that can be a costly and time consuming distraction.

And while I strongly believe this is sound legal advice, that I stand by, it raises the risk that a donor’s gift ends up being used for a purpose wildly different from what the donor may have wanted.  And that risks upsetting a donor’s heirs or creating tension between them and the charity.

Here is an interesting case study.  The University of New Hampshire has recently taken a lot of heat for its use of a large, unrestricted charitable gift from the Estate of Robert Morin.  Morin spent his career working as a UNH librarian.  I doubt he was highly paid, but he was secretly a “millionaire next door” and left his $4 million fortune to UNH without restrictions.

As it was legally entitled to do, UNH used the gift as it saw fit.  $100,000 went to the library, $2.5 million went to upgrade the UNH career center, and $1 million went to purchase a new high-definition video scoreboard for the UNH Wildcats’ stadium.  The rest is still unallocated.  UNH had spent the last several years upgrading its football program and stadium, and the purchase of the scoreboard was I assume an expense that UNH believed was important for raising the school’s stature.

Many have objected to the purchase of the scoreboard as antithetical to the way Morin lived his life.  But this is not the legal standard.  What UNH did was not illegal or even unethical.  Also, there is no real evidence that Morin would have disagreed.  He could have restricted his gift, but chose not to.

When making charitable gifts in your Estate Plan, consider carefully whether to restrict them.  And if restrictions are important to you, there may be a way to work closely with the charitable institution to accomplish your goals, without limiting its opportunities.

Image from wikipedia, Erie Explosion v. Fayetteville Force.

Hugh Hefner and Inter Vivos QTIP Trusts

HefnerThe iconic Hugh Hefner, founder of Playboy magazine, died last week.  Hefner was married three times and had four children, two from each of his first two marriages.  He was also survived by his current wife, 31 year old Crystal Harris, whom he married in 2012, at the age of 86.

There is no doubt that Hefner’s estate is large, and likely includes interests in Playboy Enterprises, Inc., the privately held company he founded.  How will his estate be divided?  That depends on his Estate Plan.

If Hefner planned properly, we’ll never know the details of his Estate Plan.  Rumor has it Crystal Harris will not receive any assets from the Estate, but that Hefner nonetheless provided for her.  But how?  My theory is that before his death Hefner established and funded a Trust for Crystal’s benefit that would provide for her after his death.  This kind of trust is known as an irrevocable inter vivos QTIP Trust.  (My husband tells me in this context it sounds like something dirty.  It’s not.)  QTIP stands for Qualified Terminable Interest Property.   Inter vivos means it was established during the donor’s lifetime.  Irrevocable means it cannot be revoked or amended.

There are several features of the inter vivos QTIP Trust that make it a good estate planning strategy for Hefner (and perhaps others like him).

First, a QTIP Trust is eligible for the unlimited marital deduction, and thus is not subject to estate taxes at Hefner’s death.  In addition, Hefner’s gifts to the trust during his lifetime were not taxable gifts and thus did not deplete his gift/estate tax exemption.   What is left in the trust at Crystal’s death will be included in her estate, but may be fully protected by her own estate tax exemption so that no estate taxes will be due.

Second, for the trust to qualify for the marital deduction, Crystal must be the sole beneficiary.  In addition, she must receive all the net income from the trust, and may receive principal.  These Internal Revenue Code requirements are likely consistent with Hefner’s goals in providing for Crystal.

Third, when the trust was established, Hefner set its terms.  This means Crystal does not control the assets.  In addition, Hefner directed how the assets remaining in the trust at Crystal’s death will pass.  Thus, he could ensure that they pass to his children or grandchildren.  If he had left assets outright to her, they could pass to her future husband or children.  For this reason, QTIP Trusts are a great planning strategy for couples in second or third marriages.

Fourth, the QTIP Trust may be a grantor trust, so that Hefner – the donor – paid the income taxes on the trust income during his lifetime.   This ensures that the income taxes do not deplete what is available for Crystal after his death.

Fifth, the QTIP Trust is separate from Hefner’s other estate plan documents.  This creates less risk of a Will contest or other conflict during estate administration.

Inter vivos QTIP Trusts are not for everyone, but they can offer some clients significant benefits and estate tax savings.

Image from flickr, Alan Light. https://www.flickr.com/photos/alan-light/255835461.

Never Trust a Yalie: The Estate of Elihu Yale

yale-university-1604158_960_720Elihu Yale was a colonial era merchant who amassed considerable wealth at the end of the 17th century as President of the East India Company’s post in Madras, India.  He was one of the earliest benefactors of the Collegiate College in New Haven, Connecticut, now Yale University and named for him.  The story behind the naming of the University involves an interesting quirk in the administration of Yale’s estate.

In 1717, the founders of Collegiate College sought a gift from Yale to establish a college in Connecticut.   The founders approached Yale not only because of his fortune, but also because he had no descendants to inherit his wealth and he had familial ties to Connecticut.  Yale agreed, and soon thereafter, he donated to the College a box of books, a picture of King George, and English goods valued at 200 British pounds sterling, all valued at 800 colonial pounds.  It was a large gift, although not enough to establish an endowment.  Yale also promised the College “a succession of solid and lasting benefits”, including a gift at his death.  As a result, in 1718, Collegiate College became Yale College.

Yale sent one more gift to the College in June 1721, one month before his death.  But the big gift the College expected from Yale’s estate never came.  The reason?  At the time of his death Yale’s Will – which left a gift to the College – remained unsigned.   Yale’s widow was named Executor of his estate, and the entirety of his estate – less debts – passed to her.  Yale College objected in probate court but was unsuccessful.  The College’s founders advocated for receipt of a portion of the estate for over two years following Yale’s death, but his widow, the daughters from her first marriage, and their husbands – all wealthy as well – refused to settle or agree to make any gifts.  In the end, no part of the estate passed to the College.

Take it from this Harvardian – don’t make the same mistake as Elihu Yale.  Have in place a quality estate plan that sets forth your wishes before your death.  And be sure to sign it.

(I give credit for this interesting history to my friend and colleague, Megan Lenzi, who learned a “cleaned up” version of this story while touring Yale with her son this summer.  Apparently, in traditional Ivy League fashion, the school has chosen to gloss over this history.)

The facts in this post came from Hiram Bingham’s article “Elihu Yale” published by the American Antiquarian Society in 1937. 

Don’t Take Your Testamentary Freedom for Granted

river-frontage-233041_960_720Despite recent events, the United States is still the land of the free.  And one of the (less discussed) freedoms we enjoy in the U.S. is the freedom of testation – the freedom to dispose of our assets at our death however we wish.  With few exceptions, we in the U.S. are free to disinherit children, leave insufficient assets to a spouse, and benefit pets rather than family members, to list a few examples.  The one notable exception is that most states (including Massachusetts) have an elective share statute which ensures that a spouse cannot be totally disinherited.

While this “testamentary freedom” may seem like common sense to us, it is unusual and does not exist in most countries around the world.  In much of Latin America, contintental Europe, the Middle East, and Asia, “mandatory inheritance” or “forced heirship” laws require that spouses and descendants (and sometimes even parents or siblings) inherit, regardless of what a decedent’s Will states.  These laws are especially common in civil law jurisdictions.  The rationale of these laws is the legal theory that family members have an automatic right to inherit property and that decedents have an obligation to adequately provide for them.  In most countries, the forced heirship law applies to a portion of the estate (e.g., 1/3), although it may be a large portion.  The decedent may dispose of the rest as he or she wishes.

In the United States, Louisiana is the only state with a forced heirship law.  But even Louisiana’s law is limited in that it only prohibits the disinheritance of children who are under age 24 or who are disabled or incapacitated.  Puerto Rico also gives a decedent’s children the right to inherit a portion of the Puerto Rico estate, provided that a surviving spouse retains a usufruct (or a life estate) in the property.

For U.S. clients who own real property abroad, it is important to consider forced heirship laws of the country where the property is located as part of your estate planning.  Otherwise that property may pass under that country’s forced heirship law, and not as designated in your estate plan.

Here is an example that came up recently in my practice:

Sarah died as a Massachusetts resident owning a valuable vacation home in Puerto Rico.  She was survived by her husband, Jack, and three grown children.  Her Massachusetts estate plan left all of her assets to Jack.  Nonetheless, Puerto Rico’s forced heirship laws required that a portion of the Puerto Rico home pass to the three children.  Jack retained only a usufruct, or life estate.  The property was sold, but only a part of the proceeds passed to Jack.  The rest passed to the children.  It was not the result Jack wanted, or Sarah would have wanted.

If you own real property in a forced heirship jurisdiction, you should discuss with your estate planning attorney how that property will pass after your death under that jurisdiction’s laws.  In some cases, there may be an opportunity, with advance planning, to circumvent the laws and obtain the result you want.  For example, you may want to form an entity to own the property.